How to Earn Passive Crypto Income with Yield-Bearing Stablecoins in 2025

Key Takeaways

• Yield-bearing stablecoins fall into three categories: treasury-backed, DeFi wrappers and synthetic models.

• US and EU regulations prevent issuers from paying interest directly, and access is often restricted to qualified or offshore investors.

• Rebases and protocol rewards are generally taxed as income when credited.

• Main risks include changing regulation, market volatility, smart contract vulnerabilities and liquidity constraints.

Introduction

The pursuit of passive income has always pushed investors to seek out reliable assets such as dividend-paying stocks, real estate or government bonds.

In 2025, cryptocurrency offers a new option: yield-bearing stablecoins. These tokens are designed not only to maintain their peg to the dollar but also to deliver a steady stream of income simply by sitting in your wallet.

Before allocating capital, however, it is critical to understand what these instruments are, how they generate yield and what the legal and tax rules mean for investors.

What Are Yield-Bearing Stablecoins?

Conventional stablecoins such as Tether’s USDt (USDT $1.00) or Circle’s USDC (USDC $0.9994) are pegged to the US dollar but do not provide any return for simply holding them. Yield-bearing stablecoins, on the other hand, automatically distribute returns from their underlying assets or strategies to tokenholders.

Three main models in 2025

Tokenized treasuries and money market funds

These are backed by traditional safe assets such as short-term US Treasurys or bank deposits. The yield from these holdings is passed to tokenholders, often through rebasing or by increasing the redemption value of each token. In many ways, they operate like blockchain-wrapped versions of money market funds.

Decentralized finance (DeFi) savings wrappers

Protocols such as Sky (formerly MakerDAO) allow users to deposit stablecoins like Dai (DAI $0.9993) into a savings module. Wrapping them into tokens such as sDAI results in balances that grow automatically at a rate determined by governance.

Synthetic yield models

Some stablecoins rely on derivatives strategies, staking rewards or funding rates from perpetual futures. These synthetic models can deliver higher returns but are more sensitive to changing market conditions.

Can You Earn Passive Income with Yield-Bearing Stablecoins?

Yes, but the process depends on the type of product. A typical path looks like this:

1. Choose the stablecoin model

   • For lower risk, select treasury-backed or money-market-based tokens.

   • For moderate risk with DeFi exposure, look at savings wrappers such as sDAI.

   • For higher but more volatile returns, synthetic stablecoins like sUSDe are available.

2. Acquire the stablecoin. These tokens can usually be purchased on centralized exchanges (subject to KYC) or directly through protocol interfaces. Access restrictions are common, especially in the US. For example, tokenized treasury products are often classified as securities and limited to offshore or qualified investors. Minting is generally limited as well. Circle, for example, allows only approved institutions to mint USDC. Retail investors must buy existing circulating tokens rather than creating new ones.

3. Hold or stake. Many yield-bearing stablecoins deliver returns simply by holding them in a wallet. Rebasing tokens increase balances over time, while wrapped tokens gradually appreciate in value.

4. Use in DeFi for additional returns. Some investors deposit their yield-bearing stablecoins into lending protocols, liquidity pools or structured vaults for further yield. While this can multiply income streams, it also layers in additional risks.

5. Track taxable events. Most jurisdictions classify the yield received from rebases or balance increases as taxable income at the time it is credited. Accurate records are essential.

Certain stablecoins increase their redemption value rather than minting additional tokens. Although the end effect is similar, it may alter tax treatment depending on the jurisdiction.

Examples of Yield-Bearing Stablecoins

True yield-bearing stablecoins

• USDY (Ondo Finance): A tokenized note backed by short-term Treasurys and deposits. It is available only to non-US investors with full KYC and AML checks. Transfers into or within the US are restricted. USDY distributes Treasury yields through a rebasing mechanism.

• sDAI (Sky): A wrapper around DAI deposited in the Dai Savings Rate. Balances grow at a variable rate determined by Maker governance. sDAI is integrated widely in DeFi but relies on smart contracts and protocol decisions rather than insured assets.

Synthetic stablecoins

• sUSDe (Ethena): A synthetic dollar that balances long spot crypto with short perpetual futures. Yield comes from funding rates and staking rewards. Returns can compress quickly, and risks include market volatility and reliance on exchanges.

Tokenized cash equivalents

• BlackRock’s BUIDL: Tokenized money market fund shares. They distribute monthly dividends in the form of new tokens. While popular with institutions and DeFi protocols, retail access is highly restricted.

The 2025 Stablecoin Rulebook

United States (GENIUS Act)

In 2025, the US passed the GENIUS Act, the first federal stablecoin law. It prohibits issuers of payment stablecoins from paying yield or interest directly to holders. As a result, mainstream tokens such as USDC or PayPal USD (PYUSD $0.9991) cannot pay holders for simply keeping tokens in their wallets. Yield-bearing versions are usually structured as securities, available only to qualified investors or offered offshore.

European Union (MiCA)

The EU’s Markets in Crypto-Assets (MiCA) framework treats e-money tokens as payment tools only. Issuers are forbidden from paying interest, and stablecoins cannot function as savings instruments.

United Kingdom (developing rules)

The UK is finalizing its regulatory framework. Although not an explicit ban yet, policy direction aligns with the US and EU, focusing on payments rather than yield.

Tax Considerations for Yield-Bearing Stablecoins

Tax treatment is a critical factor in evaluating potential returns.

• United States: Rebases and staking-style rewards are taxed as ordinary income at the moment they are credited, regardless of whether the tokens are sold. Later disposals trigger capital gains tax. In 2025, new reporting rules require exchanges to issue Form 1099-DA and mandate taxpayers to track cost basis per wallet.

• European Union and globally: The DAC8 and CARF frameworks require crypto platforms to automatically report user activity to tax authorities starting in 2026.

• United Kingdom: HMRC guidance generally treats DeFi yields as income, while disposals also fall under capital gains tax rules.

Proper tracking and reporting are therefore essential, especially as regulatory and reporting frameworks tighten.

Risks to Consider

• Regulatory risk: Laws can change quickly, restricting access or shutting down products entirely.

• Market risk: Synthetic models rely on volatile market conditions and can lose yield overnight.

• Operational risk: Smart contract bugs, custody failures or governance decisions may put holdings at risk.

• Liquidity risk: Some products impose redemption restrictions or lock-up periods, limiting flexibility.

Although the appeal of passive yield is strong, stablecoin strategies are not equivalent to insured bank deposits. Each model has trade-offs that must be weighed carefully.

The prudent approach is to size positions cautiously, diversify across issuers and strategies, and stay up to date with legal and redemption requirements. Yield-bearing stablecoins should be treated as investment products, not risk-free savings.

Conclusion

In 2025, yield-bearing stablecoins have matured into a complex but valuable addition to the digital asset landscape. They offer investors an alternative source of passive income through treasury backing, DeFi mechanisms or synthetic yield models. However, regulatory restrictions, tax rules and risk factors mean that these instruments require careful analysis before use.

The potential is real, but so are the challenges. For investors who understand the mechanics and comply with regulations, yield-bearing stablecoins can provide a diversified income stream in an evolving financial environment.

Frequently Asked Questions

Are yield-bearing stablecoins safe?

They are not risk-free. Treasury-backed versions may be safer than synthetic models, but all carry regulatory, operational and liquidity risks.

Can US retail investors access yield-bearing stablecoins?

Generally no. Under the GENIUS Act, issuers cannot pay yield directly to US retail holders. Most yield-bearing products are offered only offshore or to qualified investors.

How are yields distributed?

Some tokens use rebasing, increasing the balance in your wallet. Others increase the redemption value of each token. Both methods count as taxable income when credited.

Do stablecoins replace bank accounts?

No. Even treasury-backed stablecoins are not insured deposits. They should be viewed as investment products rather than savings substitutes.

What tax forms apply in the US?

From 2025, exchanges must issue Form 1099-DA. Rebases and rewards are taxed as income when received, while later sales may create capital gains liabilities.